Slide about social games having a larger audience than prime time TV shows.

TERRY - Why are online ad budgets so much lower than TV? How do you see brand budgets moving to social media?

JOE

Dollars follow where eyeballs are going. As people spend more time on social games, ad dollars will go there as well. In my business, we are very much into cultivating fans about our movies. We want fans to be advocates for us. Social is great because you can get ppl to sign on to your Fan page or email db and have continuing relationship.

TERRY - Any metrics on budgets growing?

JOE

Online budgets as a whole are doubling. Social as a % of the online budget is doubling, if not more.

DAVID

Keep seeing budgets increase. We like to thing it's because more ppl are playing games. But these dollars end up being allocated because the P&Gs of the world do some big study that shows the efficacy of online. So much is still controlled by TV budgets. We still can't say that if we prove more effective, more dollars will flow online. We are still fighting that battle of trying to do an apples to apples comparison.

BRIAN

For our users, we require them to check into a store, scan a UPC of a product to unlock features. Those are cutting edge techniques we are using to promote brands. Holy grail for those advertisers are validation at point of sale - we can give that.

MANNY

Only 5% of audience will monetize - so how do we monetize other 95%. We had about 1 campaign per quarter. If we look at Q4, we will have 3-4x more programs in Q4 versus early part of this year.

TERRY - Able to do so many different things in social games from an ad perspective. What are some of the best examples (or worst) of ad programs that will help us understand how you engage with brands?

MANNY

All about the user experience. All our advertising is user choice - not banner ads. Our 7-11 program saw several million codes being redeemed. Our water program had a 60% redemption rate. We saw huge engagement with McDonald's program.

BRIAN

Wanted to have best UX. So we partnered with brands that related to DJs, such as Disney's Step Up 3D the movie. 9.3M plays during that program. Users in Nightclub city wanted that content. Did a Pantene campaign, dropped 1.3M locked items in wild, only way to redeem was to go to store and get a CPG UPC code to unlock. 530,000 drops of these locked items, over 250,000 of them were unlocked. So almost 50% engagement rate. Advertisers want to see users engaged with the item. LBS (Location Based Service) play really speaks to that.

Also excited by the amount of editorial we received. Public Enemies would not have received that exposure otherwise.

DAVID

From a developer standpoint, all these things take development resources. First thing to do before going out to do biz dev is to figure out what you can do re: dev time and what budget you'll need, then look at which brands have the money to spend in that category. Try to make sure you are having very limited conversations as the cycles for these deals are very long. Find the most logical partners and target them specifically - don't spread yourself to thin.

TERRY - What about metrics for these campaigns? They are so custom. Do metrics matter? How do you compare metrics?

MANNY

Very important. We work to to measure the important soft metrics such as brand lift, purchase intent, awareness. We can truly prove the ROI of your campaign. We know the spend and how many products left the shelves. In-game ad space took about 5+ years to get standards across the board.

BRIAN

Very important, especially in mobile. We can target users down to zipcodes and time of day. Very important to brands. We can create premium campaigns. Fit of brand to game will be very important. Car Town did a great job with brand integration.

JOE

Interpreting metrics is art and science. You can compare different types of online media. Depending on the campaign, your goals will be reach, frequency or engagement. Unfamiliar or catalog titles may be measured more on engagement. Is there an exact science, no not necessarily. Making sure amount of purchased impressions are delivered on is important.

DAVID

We are a performance advertising company. All the brands that pay, pay on a cost per engagement basis. It's all based on a specific action. Trevia was all about creating a sweetness moment - uploading a picture of a sweet moment. So we could track that. Right now those metrics don't fit with other buys - the reason being social gaming is so engaging that you will outperform any other medium out there. Performance to me is the biggest differentiator with social gaming.

TERRY - What are the challenges - what's holding this market back? Is this scalable?

BRIAN

More about the fit than the scalability. For user it is really important they are engaged with the product. In terms of scalability, from LBS side that is still a very small piece of the pie. As it becomes more mainstream we can scale to a new level.

MANNY

We're still a nascent industry. Zynga has been around for 4 years only. Look at time spent in online vs ad dollars spent and we're still early - those dollars will transition. But look at what we've done with McD's, Farmers Insurance, etc and it's happening.

Re scalability, I don't have an answer. Two things I'd approach: partnerships with TrialPay and SocialVibe. Also, I'd figure out how to do a MVP first, then expand it.

TERRY - Any advice for small, less resource-rich publishers? When should they look at connecting with brands?

MANNY

At this point, still pretty intensive for a developer. If you're product is not perfect and you're not monetizing, focus on that first. Your dev team also needs to have time. Reach, revenue, retention should be your first focus. Scale question as well - if you want to reach 5M ppl on a daily basis, there are very few companies that can do that now, so focus on your own product for now.

JOE

Education process on the brand side is still a big challenge. Educating film makers and C-level execs. Only now do C-level understand online ads - so explaining in-game stuff is a bigger challenge. Other portion is thinking about a win-win situation - brand's ad needs to fit with gameplay. If it doesn't it will negatively affect the brand. Have to be somewhat flexible some game devs have freedom to be creative. Perhaps fewer approvals.

BRIAN

When you design a game, think about how you would integrate the brands. Design from ground up for brand integration.

TERRY - What hasn't worked? Any big blunders you can talk about?

DAVID

There'll be a lot of conversations you'll have with brands and a lot of times those don't go anywhere. Need to find 1 or 2 that actually fit really well. Need to have a lot of convos before something hits. Once you can show that success, guys like Zynga can replicate that success. Most guys at agency or client level don't know what Farmville is - so that's a big education process. Run into a lot of issues at the client and agency level around understanding.

MANNY

We can say no to brands that don't make sense to our games. We haven't had a failure to date. We are protective of our audience.

DAVID

Nice to have a cross-section of games that allow for almost any brand to fit in. (aka Zynga)

Might want to also educate the brands about how "vocal" and "passionate" social gamers (or gamers at all) can be so they are not shocked by the odd sound bite in a forum or Fan page.

Education of what the real audience is in social games. Perception that the audience is not moms... these really are the mid-west, etc that the brands are trying to reach. Just because ad exec doesn't play it, doesn't mean it's not your brand's target.

JOE

Getting people accustomed to receiving criticism. Leave that criticism alone - ppl will come forward with positives. This is not a 1-way medium like a TV ad. Need to respect the consumer who is engaging with your brand.

BRIAN

Understanding your audience. Which brand integration would make the game cooler and better. We work with Disney and a bunch of indie artists - the brands we work with enhance the gameplay.

New ways to pay and earn - if we add a gift card, it's available across all games

Mahjong Dimensions Example

Buy 2x boost - you have sufficient credits - make purchase... no pulling out credit card, etc. Just use your stored balance.

Millionaire City Example

Buy millionaire gold... need to buy FB credits... Visa card is stored, I make payment instantly and get my gold

Benefits for developers

Reduced payment friction - in the discretionary goods space you want to remove as much friction as possible

Seamless integration with Facebook platform - we don't want the 6th person a 5 person team hires to be a payment processing person.

Users with stored payment methods - no hump that user needs to get over to give you their payment info in a new game... if someone has spent before, FB has their info. 5-10x greater monetization among users that already have a stored payment method (whether that is FB Credits or your own cross-game method).

Found users are very very willing to pay to have these boosts in their gameplay

With a game called Ultimate Fan, we wanted to experiment with purchasing a virtual item like a plane or blimp or snowman that will give you an entry into a sweepstakes (you can also do it for free with a soft currency)

We launched it last week and it was very successful

Also implemented Credits via the purchase of downloadable casual games - with Solitaire Heaven, we offer users the ability to download any of our solitaire games and play them offline. In traditional casual downloadable space we'd lose 50-60% of the sale to distributor. In FB, we only lose 30%.

Final example is Writer's Blox - we offered the ability for users to subscribe for additional puzzles

Lessons learned working with credits:

Price premium items in Credits only - when offered a chance to buy something with soft currency, players do anything to avoid paying

Set price anchors so buyers have a reference point - set initial prices and leave for a month or so, then offer a pack of those items for slightly less so they can understand it's a deal for them

DEAN - Panel is about next-gen social games. We're in a post-viral Facebook world. How do you see the landscape now?

Mark

It's opportunity. Before it was easy to have an app grow. Now is the point where skills are tested. Are you real or are you lucky?

CHRISTA

Viral multiplier can't get much lower. Facebook is strategically bringing back some of the best viral features of days gone by. We are cautiously optimistic on the viral front. We have to be smart about cross-promotion.

NIREN

The burden is now on the games makers to make awesome games. Games that are exciting and foster more social interaction will end up winning.

DEAN - User numbers look like they've stabilized now. What do you think is critical to staying on top?

MARK

Quality of games and is your connection with friends relevant?

CHRISTA

Actual social content in the games so far has been really light. We are also trying to get more relevant with the social part. There is more time spent playing games than going to movie theatres. How do we compete for people's time more broadly. How do we get audiences to come back.

NIREN

We have to keep taking risks. As a large company, it's easy to focus on copying. In this business, we have an idea at 7am, thow it up by noon and have data by end of day. We have to stay fast-paced.

DEAN - Seems like we're in a big exit stage now. Lot of consolidation. What do you think of the different corp strategies out there?

CHRISTA

We got acquired, so that explains our strategy. Disney was exciting because we gained access to their IP library. But you can still make a crappy game with good IP, so that's just one part of the product. We just look at IP as a way to make the marketing spend more efficient. But it's still incumbent on us to make the consumer want to come back after they've tried it once.

The uncertainty of FB Credits was part of our reason to be acquired - could have been a rocky road.

NIREN

Self-funded, never raised venture money. We've stayed small and focused and allowed us to make creative games fast. But as a company we are partner-friendly. We joined up on FB Credits earlier so that users would be more comfortable spending money on virtual goods. We're pretty clear that we are here for the long term. If there is a partner that will put us on a faster path to growth, we'll look at that.

To be self-funded and get this big was high risk - reinvesting profits in talent and games. We've stayed focused, lean and mean, and there is a growth path we're on on our own.

DEAN - What do you think when you see companies moving faster because they have money?

NIREN

A partner that accelerates Crowdstar does not need to be a big media company. Could be a small studio that has great ideas. We're very clear on what we're good at and where we need to improve.

MARK

Our strategy is "connect the world through games". We look for whichever platforms and partners that will let us do that as fast as possible. You can see how our acquisitions fit into that strategy.

DEAN - Last 6 months for Zynga has been moving to new platforms.

MARK

Dipping our toe into Japan. Picking up studios around the world. We need to be in more places to develop more games. More generally said, "Go where the players are".

CHRISTA

The next big fastest-growing social network in a lot of regions is still Facebook. In India and Brazil Facebook is passing Orkut. But we need to make sure the ROI in going into that country makes sense. Need to balance ARPU and conversion rates with cost of entry into that territory. One of our games that was big in Latin America had price points that were out of whack for the US - need to create dynamic pricing structures.

DEAN - What is a next gen social game to you? I thought Civ on FB would be it.

MARK

Civ felt very hardcore to me. Like PC hardcore, which is not the FB audience. Women 35-50 love Farmville - that doesn't match to Civ. I think about it as "what's that fast light experience they can do for 5 minutes" - that's how I target next gen social.

NIREN

Games that require social interaction to play are the next gen. I don't think there will be one giant leap in one direction. Will be baby steps. IT Girl is about taking text-based RPGs in a new direction. Interesting thing about this business is that the users are defining the next gen, unlike the core games biz where the platform owner dictates next gen.

FB could be a billion users in the future. That means there will likely be a variety of 25-50M user niches, rather than one big next gen marekt

The other place to look for next gen is Japan, Korea and China. Korea is way future forward on PC platform, Japan on phone. We put products in those markets to force us to think creatively. Keeps us future proof.

CHRISTA

Not trivial to put social wrapper on a game. We've looked at traditional gaming concepts and bringing them into FB environment and it's not a trivial thing. Figuring out a way to do that is not an easy thing to do. In City of Wonder you have a classic iso-decorator, but there is a PVP element in there. You can attack a neighboring land or you can do a trade with them or even a cultural exchange. So for women, a surprisingly large number of women play it despite this PVP side. We bought Acclaim - they have a light-weight MMO-type game. We're still trying to understand how to engage core gamers on FB.

NIREN

Gamers on FB are partly coming from casual portals and partly from consoles. So there will be different types and monetization levels. If you look at microtransactions on a per capita basis, we are nowhere near other territories - $7/capita China, $20/capita Japan. So there is many times more growth left in the US.

DEAN - Where do you look for what's next?

MARK

You know there are some established genres, sometimes ppl want a new style wrapped around it. We had some open field there where non-traditional gamers were looking for new experiences. Picking successes will be just as hard but there are more chances to experiment.

CHRISTA

It is going to be iterative. Each new social game will layer on a new mechanic. Go back to boardgames - what are all the gaming mechanics when you distill them down to their essence. There aren't that many. It's about finding a concept, environment and art style that appeals to that user base. We've looked at segmentation a lot in City of Wonder.

NIREN

Blend of recognizing user aspirations and being mindful of what worked before but making sure that the innovation pivots around the social aspect.

MARK

At EA, our team would often look at what are the sections in the book store and apply those to games.

NIREN

Location-based and mobile games are really the biggest area of innovation and we can look to markets like Japan for leadership on those. Eventually iPhone will come up to that level.

DEAN - FB has talked about FB Credits putting more energy in the system. What impact have you noticed?

CHRISTA

2-2.4% conversion rates would be awesome - 2-4% would be incredible. Card-on-file data definitely helps conversion rates. Hard to draw analogies with foreign markets... in Korea 10-15% payers may be misleading as they are more targeted users, where on FB we are broader. If a FB Credit card is everywhere on the planet, it will transform how many people pay. How smoothly we get there is the question. Is this e-commerce circa 1997? All these things may need to be solved again, but the long term possibility is exciting

NIREN

It's inevitable. We started with Credits last Christmas. If you went to Amazon and as you were checking out you were presented with 32 different payment options, you'd think twice. If we don't pull these speed breakers out of the way it will hurt our ability to grow.

MARK

Is it FB Credits creating that change or is that change already coming and they are the mechanism for it. iTunes used to be odd, now it's not. As more generations get used to buying online, FB Credits is an easy way to get there.

Questions

What are the barriers you faced when implenting advertising in games? How much would you pay to acquire a user?

NIREN

Biggest barrier is audience response. Some audiences don't want to be bothered, some are OK. Repurposed ads do not work. Need to customize ad units.

CHRISTA

Can't sell ads in the traditional way. Need to come up with creative that is in line with game's fiction. Don't want to disturb the 2% who pay and impact retention for the sake of an ad.

MARK

Advertisers need to be educated on the space. We haven't pursued it as of yet.

As FB clamps down on viral channels, what is the approach? Going outside FB?

CHRISTA

Advertising on Google and bringing people back to Facebook requires people to sign in, which causes a material decrease in conversion.

NIREN

We fish where the fish are. Over time as FB's tentacles go deeper into the net, the experience will be more seamless.

DEAN - Do you guys design for whales (big purchasers)

MARK

We look at elder gameplay and designing for them... not necessarily who spends the most.

CHRISTA

We look at that as well. Sorority Life we recently added new geographies and reset the economics so you can start those whales on another ladder.

NIREN

Great news about the business is that you have the data. So you can optimize the experience for each segment. But you need the community as a whole to be engaged.

DEAN - Google rumoured to be moving into competition with FB. What scenario do you envision unfolding?

MARK

Can't comment on Google's strategy.

CHRISTA

Time spent on FB just surpassed Google. So that's not lost on Google. It would be great to have different approaches to the social problem. Will be hard for Google as it's not in their DNA the same way it is for FB.

NIREN

If you're winning on FB, you're invited to the party when a new entrant sets up. So those dialogs are happening. As a growth company, it's important to reserve a bit of your company for growth platforms and opportunities. We do that with Japan. We just have t make sure that if the community is viable, we should be there.

How young are your youngest spenders?

NIREN

My 8 year old spends a lot on my account.

CHRISTA

FB is 13 and over, so you can't be too young. Are younger players are not as good at paying because they have to ask mom and dad, so figuring out alternatives like subscriptions and working with FB to allow that occur would be good.

DEAN - What do you see as the future of the social games market?

MARK

Social game market will have more platforms. May be a shift away from going to one place for their social game experience. Mobile games will be big.

NIREN

Best games will win. Mobile will be much more central and so will one or two markets outside of the US or Facebook.